Tiger Global Preps Long-Only Launch

August 02, 2013   Stephen Taub

The firm, founded by Tiger Cub Charles (Chase) Coleman, is the latest in a string of Tiger Cubs to consider launching such a fund in the wake of disappointing performance from its short portfolio.

Tiger Global Management, the hedge fund firm founded by Charles (Chase) Coleman, is the latest firm founded by a Tiger Management veteran planning to launch a long-only fund.

"We remain encouraged by the number and quality of ideas we are identifying on the long side of the portfolio but continue to view fund size as a long-term constraint given the difficulty of scaling our short portfolio," the firm stated in its second quarter letter to investors, dated August 1. Tiger Global said it plans to limit the fund’s starting assets "to a manageable size," without specifying the amount of assets, and stressed that insiders will make "a meaningful commitment."

The hedge fund firm said the long-only fund is still in the planning stages and it is mulling the fund’s structure, but it stressed that "its decisions will ensure alignment of interests with our limited partners, proper incentive structures to keep our investment team focused on both long and short ideas, and maximization of the synergies with our existing businesses." The firm has set a preliminarily launch date of October 1, 2013 for the new vehicle

Tiger Global is at least the third Tiger Cub to plan a long-only fund this year alone. We reported last month that Jonathan Auerbach’s Hound Partners said it has been considering launching a long-only fund for the past year and a half. "We are actively debating the pros and cons of offering such a vehicle and would love your feedback," Auerbach told investors.

Earlier this year, we reported that Tiger Cub Philippe Laffont’s Coatue Management filed plans with the Securities and Exchange Commission to launch a long-only fund. Tiger Cub-founded firms running successful long-only funds include Stephen Mandel, Jr.’s Lone Pine Capital, O. Andreas Halvorsen’s Viking Capital and Lee Ainslie’s Maverick Capital.

The firm appears to have picked a good time to start a long-only fund. Performance for Tiger Global’s main hedge fund has been tepid this year compared with previous years, in part because of losses incurred from its short portfolio. In the second quarter the fund, Tiger Global, gained just 0.6 percent net of fees. In the first half of the year, the fund gained 5.5 percent compared with gains of 13.8 percent for the S&P 500, 8.8 percent for the MSCI World Index and 13.4 percent for the Nasdaq Composite.

Last year the hedge fund, which Coleman manages with partner Feroz Dewan, posted a 21 percent gain and over the past few years the team has scored big from Internet, technology and media stocks — some of them in emerging markets — as well as shrewd shorts. Last year Coleman earned $350 million, landing him at the number 12 spot on Alpha’s annual Rich List of top-earning hedge fund managers.

In its second-quarter letter, Tiger Global told clients that over the years, its long investments have compounded annually at 22 percent gross and 17 percent net compared with just 4 percent for both the MSCI World and the S&P 500 over the same period. "We believe we could scale many of these investments with little impact to our existing long portfolio while providing attractive returns to investors," the hedge fund firm stated in the letter.

Tiger Global also said it has been hurt lately by its short portfolio and provided some insight into how it maneuvers its negative bets through a treacherous environment. "As a core part of our research process, we strive to anticipate how we will act if and when a position goes against us," it explained. "In an ideal world, we would add to a short position at higher, more attractive prices. Over the last several months, however, improving macroeconomic trends have led us to change assumptions in some of our models, resulting in an inferior prospective risk/reward equation." As a result, the fund reduced a few of these positions.

Tiger Global also told clients that it was hurt in the second quarter by poor performance in emerging markets. "China in particular is under intense scrutiny as growth slows and investors have shifted their focus to the credit intensity of the country’s economic model," it added. "While valuations have begun to come down and we expect that volatility should provide opportunities to add to companies on our wish list, we intend to be patient and disciplined while selecting investments we feel can outperform over a multi-year period."

Coleman has emerged as one of the most successful Tiger Cubs. He currently runs a total of $12 billion, including about $6 billion in private equity investments.

Tiger Global last quarter offered all investors the opportunity to withdraw capital on June 30 regardless of existing liquidity terms. However, the New York hedge fund firm founded by Tiger Cub Chase Coleman said less than 1 percent of the fund’s assets were redeemed.

As a result, currently assets under management now stand at $6.2 billion.

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